From the looks of it you got it backwards.
Each time you select this unit to shoot, if it is not an
Observer unit, it can use this ability. If it does, select
one other friendly unit with this ability that is also
eligible to shoot (excluding Fortification, Battle shocked and Observer units). Until the end of
the phase, this unit is considered a Guided
unit, and that friendly unit is considered an
Observer unit...
The way it works is you select a unit then you select a second unit.
The first unit is considered a guided unit and the second is the observer. The second can not be a fortification, be battle shocked or have been selected as an observer unit before.